Sri Lanka is reeling through economic crises that are not likely to be over any time soon. It has been declared bankrupt. The obvious question point is: will Pakistan go down the same path as Sri Lanka?
Pakistan’s economy is showing signs somewhat similar to Sri Lanka. Except that it hasn’t defaulted on payment of its debts. But its probability did lead Chief of Army Staff (COAS) Qamar Javed Bajwa to call US Deputy Secretary of State, Wendy Sherman on July 31, 2022, and seek her help in securing an early disbursement of funds from the International Monetary Fund (IMF). Yet, the Executive Board of the IMF took its own time and released the fund nearly one month after the COAS call.
Bajwa also called the UAE and Saudi Arabia authorities, to seek their assurance for financial assistance to Pakistan, as a signal to the IMF, that $4 billion funding to Pakistan will be released soon after the IMF funds reach Pakistan. This move was meant to ensure that Pakistan doesn’t face a funding gap.
A day after the call by the chief, the UAE announced that it would invest $1bn in Pakistani companies. Saudi Arabia also announced that it would renew $3bn deposit at the State Bank of Pakistan (SBP), a step that encouraged the IMF to discuss with Saudi Arabia a possibility for Pakistan to borrow up to $2.8bn against Riyadh’s quota of Special Drawing Rights at the Fund as reported by The Financial Times.
Altogether, nearly $11 billion will be made available to Pakistan from the friendly countries – $5 billion as safe deposit, $1 billion worth of oil on deferred payment, a loan of $1.2 billion from the IMF, and $4bn as foreign direct investment during this year.
In addition, Pakistan received an assurance from Qatar for placement of $2 billion as safe deposit and a deferred oil facility of $1 billion from Saudi Arabia. Qatar has showed its intent to invest $3 billion in Pakistan and provide nearly 100,000 jobs to Pakistani workers.
Altogether, nearly $11 billion will be made available to Pakistan from the friendly countries – $5 billion as safe deposit, $1 billion worth of oil on deferred payment, a loan of $1.2 billion from the IMF, and $4bn as foreign direct investment during this year.
Some economic analysts are of the views that Pakistan will need at least $41 billion in the next 12 months to fund debt repayments and boost foreign exchange reserves. For a country already reeling through the fast-depleting foreign exchange reserves and a budget deficit of Rs4,547 billion (nearly $20 billion) for the last fiscal year, the need of $41 billion was too scary a figure. To allay these fears, Acting Governor of SBP, Dr Murtaza Syed, had to issue a clarification saying that the external financing needs of Pakistan are $33.5 billion for financial year of 2022-23, and they were fully met, adding that “unwarranted” market concerns about its financial position will dissipate in weeks.
The latest figures on Pakistan’s external financing requirements, as shared by Arif Habib Limited, are slightly above $30 billion for FY 2023 against the available financing (including IMF) of close to $37 billion reflects a surplus of $7 billion against the estimated external financing needs of the country. How have they arrived at the figures that vary from $41bn to $30bn as external financing needs is incomprehensible, when the major chunk of this amount is $23 billion for debt servicing during FY 2022-23.
On August 6, 2022, Finance Minister Miftah Ismail came out with an optimistic statement declaring that “all problems ended” once the government reduced the country’s imports from $7 billion to $4.9 billion in July 2022. Bringing down the import bill by 38 percent was, undoubtedly, a good sign for Pakistan’s fragile economy though the projection for the whole year based on one month’s performance was quite premature and optimistic.
It didn’t take too long for the ground reality to disprove all these assessments as the import bill for August went up to $6 billion from $4.9 billion in July.
It didn’t take too long for the ground reality to disprove all these assessments as the import bill for August went up to $6 billion from $4.9 billion in July. A table using these trading figures and the foreign loans draw a more comprehensive picture of the country’s external financial needs.
| Projected external financing needs using average of Trade Deficit during Jul-Aug 2022 | |
| REVENUE | ($ million) |
| Remittance (Approx $8b per quarter) | 32,000 |
| Exports (Approx $2.2b per month) | 30,000 |
| FDI (including Qatar and Saudi commitments) | 4,000 |
| Total Revenue (Estimated for FY 22-23) | 66,000 |
| EXPENSES | |
| Debt servicing | 23,000 |
| Imports (@ $5.47 billion per month)* | 65,580 |
| Total Expenses (Estimated for FY 22-23) | 88,580 |
| Shortfall (Estimated for FY 22-23) | 22,580 |
| * Average of $4.9b and $6.03b of July & August import bills | |
With a dwindling trend of export earnings and unimpressive inflow of foreign direct investments in the country, the available IMF loans and friendly countries’ support is going to take care of only one-third of the shortfall of $22.58 billion. How will the remaining two-third ($16 billion) of the shortfall be met will remain a worrisome challenge for the country.
So, in a nutshell, we can say that despite taking the SBP governor’s assurances as satisfactory, the monster of an expected huge amount of import bill and foreign exchange reserves during the FY 2022-23 remains a worrisome challenge for the country that is demanding actions based on reality.
